Outsider: Transition payments are dead, long live transition payments

It’s a familiar experience on both sides of the Atlantic to switch on an evening news programme and be faced with a constitutional law professor bemoaning the fact that their area of expertise is suddenly, and continuously, front page news. Those of us watching quietly suspect they love every minute of it.

I think it’s time to feel the same way about pharmacy funding. Everyone is yet again complaining about the amount the sector gets, but is it all a bit ‘boy cries wolf’? If they keep shouting the same thing over and over, they clearly haven’t yet been eaten.

The Government and England’s national negotiator have yet again failed to agree to an uplift in the £2.592bn locked in from the start of the five-year framework. And because everyone’s already talked about it, I won’t. Much.

The latest noise is about transition payments – the temporary holding payment to compensate for the loss of MURs and Establishment Payments while the new services in the contract were being sufficiently embedded to deliver what would otherwise result in a shortfall.

At the point MURs ceased to be, the funding gap that transition payments sought to fill was around £20m a month (around £1,800 per contractor).

That amount was always planned to decrease as new services grew and by April 2022, it sat at around £16.5m a month (£1,500 per contractor), with a recognition that it would continue to decrease over the rest of the remaining two years. That service income has grown faster than the planned taper is ostensibly a good sign, but the end result was an overpayment to contractors.

Overpayments are annoying and normally involve margin. That this one involved the taper rate between services and transition payments is just odd. That PSNC and the paymasters fell out over it to such an extent that the transition payment has been scrapped and a “new flat payment” (i.e. a transition payment) introduced is plainly bizarre.

This new transition payment works out at just over £5.8m a month (£530 per contractor), which is pretty much bang on where PSNC and the Department predicted we would be in October. To be explicit, there is still £70m a year out of the £2.592bn global sum that is still being delivered not against a service, but as a payment for just being there.

So the only argument I want to hear from those complaining about how much pharmacies are being paid or not paid is about how much for exactly what. At this point, let’s just remind everyone that it’s still the same government that’s so “pro-small business” it wrote into the five-year framework that it sees no value in dispensing, so best not be looking there for any money.

More specifically, what can be stacked up against that £70m? It’s still a gap. Better be plugging that gap first otherwise it will soon be £2.522bn...

Vanishing returns

Talking of unfeasibly large sums of money, what once cost £477m and might soon be worth nothing?

Well, 18 months ago, £477m bought you the entire LloydsPharmacy estate along with wholesaler AAH, digital repeat prescription service LloydsDirect, LloydsPharmacy Clinical Homecare, LloydsPharmacy Online Doctor, MASTA and central London Pharmacy John Bell & Croydon.

Not long ago, LloysdPharmacy comfortably held over 10 per cent market share in NHS prescriptions. In April 2021, it was down to 9.2 per cent. A year later, it sat at a lowly 7.8 per cent. The latest twist in this sorry tale is the breakdown in the relationship between Sainsbury’s and the remaining LloydsPharmacy implants.

These represent a unique use-case for the new owners as they’re an estate of pharmacies that both Sainsbury’s and the previous owners of LloydsPharmacy thought were worth keeping.

That neither the landlord nor the tenant can agree a sale or transfer of undertakings of the pharmacies – all recently rebranded and invested in – is a deleterious sign. Of what, only time will tell. Is the failure to secure the future of these pharmacies the equivalent of canaries in the coal mine? Some of my colleagues would certainly be tempted to claim that.

Or is it merely what you come to expect from certain types of venture capital investors?The problem for community pharmacy is that there isn’t a lot of time until the end of this five-year contractual framework.

For those pharmacies that aren’t riding that crest of the services funding that caused the cancellation of the transition payment, time may already have run out.

Outsider is a community pharmacist. What did you make of the transition payments announcement? Let us know at p3pharmacy@1530.com